Keep your eye on Thai

Make no mistake, the aviation sector is booming in the areas of airline profitability and therefore aircraft and engine manufacture, which in turn makes for a finance and leasing boom. But there are some slight imperfections as is always the case. At the top of our list for some time has been Jet Airways: Jet shares slipped another 3% today on news that regulators will rule in Etihad’s favour on the obligation to make an open offer for minority shareholders. Etihad had argued that the definition of control under the takeover code should be looked at differently from that in the competition law. Etihad, which has purchased a 24% stake in Jet, had earlier rejected any obligation to make an open offer for minority shareholders. This of course in the long run is good news for Jet because if Etihad were to pull out at any point then Jet Airways would surely fail, as things stand another danger has been averted.

Meanwhile Thai Airways, MAS and PIA are the flag carriers in the most trouble at this time (other than Jet, AirBerlin and Alitalia) and one wonders if Etihad will fly to the rescue of any one of these airlines at some point in the near future? All three airlines are structurally unsound and require a complete cost base overhaul if there are to survive in any way intact. All three airlines display symptoms not too dissimilar to those of JAL before its collapse and re-birth. As such one could argue that government intervention is required in all three cases before the close of 2015. Government intervention should in these three cases mean taking over the airline and rebuilding it from the ground up but that means the airline has to collapse first. If governments simply allow the airline to flounder on and decide the best policy is to keep pumping cash into a black hole then you get an Air India scenario all over again. MAS, especially, should be able to turn things around at speed now that the government in Malaysia has a reason to take more interest in the airline and assist with required cost base changes – but will they? Our information suggests that the Malaysian government and MAS will indeed take steps to reform the business in the near term and instead of attacking MAS one should maybe turn attention towards Thai as right now it is that business which seems to be on a significant downward spiral and the government in Thailand has a great many things to worry about before getting their flag carrier in order. Will Thai management have the gumption to take a sword to staff costs and badly-performing routes? We have been waiting for some time. I foresee that the next set of results might well be bad enough to force management to make a move on getting the airline in good order. Keep your eye on Thai.

Another story we have followed over the past year is that of the so-called Middle East Respiratory Syndrome (MERS) virus and since SARS and its effect on global aviation one cannot overlook such developments especially given that the seat of the virus is Saudi Arabia and the affects that MERS could have on Haj traffic. Today Saudi Arabia confirmed 26 more cases and ten deaths of MERS, this follows Egypt's announcement on Saturday that it had confirmed its first case of MERS in a man who had recently returned to the country from Riyadh. Saudi Arabia has 339 confirmed cases of MERS, of which 102 have been fatal. The reason for renewed interest in this virus is due to a 73% leap in cases over the past three weeks with 143 cases announced since the start of April with 26 cases confirmed over this past weekend in Jeddah, Riyadh, Mecca and Tabuk. In all ten deaths were recorded from these 26 persons over the weekend.

In Saudi Arabia pharmacies say sales of hand sanitisers and other hygiene products are outstripping supply.

The Haj is not until 20th September but the main booking period is running now. It is well worth keeping a track on key airlines such as PIA and Saudiair to see if their core earnings period will be affected in 2015.